“S&P 500 earnings results reflect the strengthening macroeconomic backdrop,” says the research note, observing that margins at index companies had finally broken out of a period marked by stagnation.

In fact this quarter was notable because margins rose to an all-time high of 9.1%, driven primarily by the Information Technology and Healthcare sectors.

Revenue, margins and EPS

The analysts estimate that on annualised basis sales at S&P 500 companies, excluding those in the Financials and Utilities sectors grew 5%. The outlook for the second half of 2014 is even better – revenue is expected to grow 6%.

S&P 500 operating EPS is estimated to have grown 12% compared to the year ago quarter to $ 29.44. For the second half of 2014 earnings are expected to grow 7% compared to 9% during H1.

The information technology sector reported margins of 17%, the highest ever and 34 basis points above the March 2012 peak of 16.7%. The bulk of this margin expansion came courtesy of five companies, namely Google Inc (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC), International Business Machines Corp. (NYSE:IBM), Micron Technology, Inc. (NASDAQ:MU) and Apple Inc. (NASDAQ:AAPL).

The healthcare sector also reported robust numbers with earnings as well as revenue ahead of expectations by over 4%.

“Almost 2/3 of healthcare firms beat earnings estimates by at least one standard deviation and no healthcare companies missed estimates by that magnitude,” observe the analysts.

In the charts below note that the information technology and healthcare sectors have been outperforming the S&P 500 over the past 1-1/2 years:

Companies’ conference calls strike a bullish note

The Goldman Sachs analysts also note that the recovering economy is encouraging companies to report optimistic outlooks and plans for stock buybacks and capital expenditure. Companies having operations in emerging markets are expecting China to show the way towards higher growth. However, apprehensions of rising inflation are leading to somewhat tempered expectations of continued margin growth.

Strong earnings are laying the basis for yet more upside for the S&P 500

“Even though the market has sold off, the index reached new highs just two weeks ago,” observe the analysts. “We expect the S&P 500 will likely rise 9% to 2075 in 12 months.”